Item 1.01.
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Entry into a Material Definitive Agreement
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Senior Credit Facilities
On April 29, 2016, Western Digital Corporation, a Delaware corporation (
Western Digital
), entered into a credit agreement
(the
Senior Credit Agreement
) with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the other lenders and financial institutions party thereto, providing for approximately $9,875 million in senior
secured credit facilities (the
Senior Credit Facilities
) consisting of a $4,125 million term loan A tranche maturing five years after the effective date (the
Term Loan A Facility
), a $3,750 million term
loan B tranche maturing seven years after the effective date (the
U.S. Term Loan B Facility
), a 885 million term loan B tranche maturing seven years after the effective date (the
Euro Term Loan B Facility
and, together with the U.S. Term Loan B Facility, the
Term Loan B Facilities
) and a $1,000 million revolving credit facility maturing five years after the effective date (the
Revolving Facility
). A portion of
the revolving facility, not to exceed $200 million, is available for the issuance of letters of credit. Western Digital expects to use the proceeds of the loans under the Senior Credit Facilities to, among other things, (i) finance, in part, the
pending acquisition (the
Acquisition
) of SanDisk Corporation, a Delaware corporation (
SanDisk
), by Western Digital Technologies, Inc., a wholly-owned subsidiary of Western Digital, (ii) refinance certain
existing indebtedness of Western Digital and SanDisk and (iii) pay certain transaction costs.
The proceeds of the borrowings under the
U.S. Term Loan B Facility and the Euro Term Loan B Facility were deposited into separate segregated escrow accounts (the
Escrow Accounts
) and will be held in escrow prior to the closing of the Acquisition. The release of the
escrowed funds will be subject to the conditions set forth in the Escrow Agreement (as defined herein) (the
Escrow Release Conditions
). At the closing of the Acquisition (i) the proceeds of the borrowings under the Term Loan B
Facilities will be released from escrow (the
Escrow Release Date
) and (ii) Western Digital will draw the term loans under the Term Loan A Facility and will have the ability to borrow under the Revolving Credit Facility. If the
Escrow Release Date does not occur on or prior to the Outside Date (as defined in the Senior Credit Agreement) or if Western Digital determines that the Escrow Release Conditions cannot be satisfied (the earlier of such dates, the
Escrow
End Date
), Western Digital must prepay in full the amount of the Term Loan B Facilities funded into escrow, together with any accrued interest and fees in connection therewith.
The obligations under the Senior Credit Facilities are (and will be) unconditionally guaranteed by certain of Western Digitals existing
and subsequently acquired or organized wholly-owned, material domestic subsidiaries (the
Guarantors
), subject to certain exceptions. Prior to the satisfaction of the Escrow Release Conditions, JPMorgan Chase Bank, N.A., as
administrative agent and collateral agent for the Senior Credit Facilities, will have a perfected first-priority lien on the funds held in the Escrow Accounts on behalf of the lenders under the Term Loan B Facilities. Upon the satisfaction of the
Escrow Release Conditions, Western Digital expects that the obligations under the Senior Credit Facilities will be secured on a first-priority basis (subject to permitted liens) by a lien on substantially all the assets and properties of Western
Digital and certain of the Guarantors, including all of the capital stock held by Western Digital and such Guarantors (subject to a limitation on pledges of capital stock of foreign subsidiaries and domestic holding companies of foreign
subsidiaries, other than 65% of the voting stock of first tier entities), subject to certain exceptions.
Borrowings under the Senior
Credit Facilities, other than borrowings under the Euro Term Loan B Facility, will bear interest at an applicable margin plus a rate per annum calculated by reference to, at Western Digitals option, (1) an adjusted LIBOR rate (subject to a
0.75% floor for the U.S. Term Loan B Facility and a 0.00% floor for the Term Loan A Facility and the Revolving Facility), determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing,
adjusted for certain additional costs or (2) a base rate, determined by reference to the highest of (a) the prime rate of JPMorgan Chase Bank, N.A., (b) the federal funds effective rate plus one-half of 1.00% and (c) the one month adjusted LIBOR
rate plus 1.00%. The interest rate for borrowings under the Euro Term Loan B Facility will be calculated by reference to an adjusted EURIBOR rate (subject to a 0.75% floor), determined by reference to the cost of funds for Euro deposits for the
interest period relevant to such borrowing, adjusted for certain additional costs.
Borrowings under the Term Loan A Facility and the
Revolving Facility will initially bear interest, at Western Digitals option, at the adjusted LIBOR rate plus 2.00% per annum or the base rate plus 1.00%. Following the delivery of financial statements for the first full fiscal quarter after
the Escrow Release Date, the applicable margin for the borrowings under the Term Loan A Facility and Revolving Facility will range, depending on Western Digitals leverage, from 1.50% to 2.25% for LIBOR loans and from 0.50% to 1.25% for base
rate loans. Borrowings under the U.S. Term Loan B Facility bear interest at a rate per annum equal to, at Western Digitals option, either (1) the adjusted LIBOR rate plus an applicable margin of 5.50% or (2) the base rate plus an applicable
margin of 4.50%. Borrowings under the Euro Term Loan B Facility bear interest at a rate per annum equal to EURIBOR plus an applicable margin of 5.25%.
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The Term Loan A Facility will amortize in equal quarterly installments of (i) 1.25% per quarter
during the second four full quarter period following the Escrow Release Date, (ii) 1.875% per quarter for the succeeding four quarters, (iii) 2.50% per quarter for the succeeding four quarters and (iv) 5% per quarter for the succeeding three
quarters, with the remaining balance payable on the date that is five years after the effective date. Commencing from the first full quarter following the Escrow Release Date, the U.S. Term Loan B Facility and the Euro Term Loan B Facility will each
amortize in equal quarterly installments equal to 0.25% of the original principal amount thereof, with the balance payable on the date that is seven years after the effective date.
The Revolving Facility is initially subject to a 0.30% per annum commitment fee, subject to step-downs to 0.20% and 0.25% and a step-up to
0.35% based on Western Digitals total leverage ratio. In addition, under the Senior Credit Agreement, Western Digital will pay a nonrefundable ticking fee of 0.50% per annum on the amount of the aggregate commitments in effect under the Term
Loan A Facility and the Revolving Facility from January 7, 2016 until the earlier of (x) the Escrow Release Date and (y) the Escrow End Date.
The Senior Credit Agreement has incremental facility capacity available from and after the Escrow Release Date in an aggregate amount of $750
million, subject to certain conditions, including a specified senior secured leverage ratio. Once Western Digitals senior secured leverage ratio is below a certain threshold, incremental facilities may be utilized in an unlimited amount from
and after the Escrow Release Date.
From and after the Escrow Release Date, Western Digital will be required to maintain a minimum fixed
charge coverage ratio and a maximum total leverage ratio with respect to the Term Loan A Facility and the Revolving Facility.
Subject to
certain exceptions and thresholds, from and after the Escrow Release Date the Term Loan A Facility and Term Loan B Facilities will also require mandatory prepayments in connection with (i) excess cash flow, (ii) non-ordinary course asset sales and
other dispositions and (iii) the issuance of certain debt obligations, among other things. In addition, the Term Loan B Facilities require Western Digital to make a mandatory repayment if more than $100 million in aggregate principal amount of
SanDisks convertible notes due 2017 and 2020 remain outstanding on the date that is 90 days after the Escrow Release Date in an amount equal to the outstanding amount of such convertible notes. Subject to certain conditions and exceptions,
Western Digital is permitted to make voluntary prepayments of the loans under the Senior Credit Facilities and to reduce the existing loan commitments at any time without premium or penalty, except that the Term Loan B Facilities require Western
Digital to pay a 1.00% prepayment fee if the loans thereunder are repaid in connection with certain repricing transactions on or before the one year anniversary of the effective date.
The Senior Credit Agreement contains customary representations and warranties and affirmative covenants applicable to Western Digital and
certain of its subsidiaries and also contains certain restrictive covenants applicable from and after the Escrow Release Date, including, among others, limitations on the incurrence of additional debt, liens on property, acquisitions and
investments, loans and guarantees, mergers, consolidations, liquidations and dissolutions, asset sales, dividends and other payments in respect of Western Digitals capital stock, prepayments of certain debt, transactions with affiliates and
certain modifications of organizational documents and certain debt agreements. The Senior Credit Agreement also contains customary events of default and if and for so long as an event of default has occurred and is continuing, any amounts
outstanding under the Senior Credit Agreement will accrue interest at rate that is 2.00% above the otherwise applicable interest rate.
The foregoing description of the Senior Credit Facilities is not intended to be complete and is qualified in its entirety by reference to the
full text of the Senior Credit Agreement, a copy of which is attached hereto as Exhibit 10.1 and incorporated herein by reference, and the Guaranty Agreement, a copy of which is attached hereto as Exhibit 10.2 and incorporated herein by reference.
Escrow Agreement
On April 29, 2016,
Western Digital entered into an escrow agreement related to the Senior Credit Facilities (the
Escrow Agreement
) with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent under the Senior Credit Facilities, and
SunTrust Bank, as escrow agent and securities intermediary. Pursuant to the Escrow Agreement, Western Digital deposited the gross proceeds of the Term Loan B Facilities less any upfront fees and/or OID into the Escrow Accounts. The release of the
escrowed funds will be conditioned on the consummation of the Acquisition and other conditions set forth in the Escrow Agreement and the Senior Credit Agreement.
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The above description of the Escrow Agreement is qualified in its entirety by reference to the
complete text of the Escrow Agreement, a copy of which is attached hereto as Exhibit 10.3 and incorporated herein by reference.
Certain Relationships
Certain of the lenders and banks and financial institutions party to the Senior Credit Agreement and their respective affiliates are
full service financial institutions and have in the past engaged, and may in the future engage, in transactions with and perform services, including securities trading, commercial and investment banking, financial advisory, investment management,
investment research, principal investment, hedging, financing and brokerage activities, for Western Digital and its affiliates in the ordinary course of business for which they have received or will receive customary fees and expenses. In addition,
certain of the lenders, banks and/or financial institutions party to the Senior Credit Agreement and/or their respective affiliates acted as initial purchasers in connection with Western Digitals offerings of its 7.375% Senior Secured Notes
due 2023 and its 10.500% Senior Unsecured Notes due 2024 and will receive customary fees and expenses in connection therewith. In addition, certain of the lenders, banks and/or financial institutions party to the Senior Credit Agreement and/or their
respective affiliates are lenders and/or agents under Western Digitals existing credit agreement, the indebtedness outstanding under which will be repaid in connection with the Acquisition and as such will receive a portion of the net proceeds
from the Senior Credit Facilities used to repay such credit facility. In addition, certain of the lenders, banks and/or financial institutions party to the Senior Credit Agreement and/or their respective affiliates are serving as financial advisors
to Western Digital in connection with the Acquisition, for which they will receive customary fees.